Ukraine Vows to Stanch Separatism as Militants Spread. Ukraine’s
acting president vowed to create a special police force to staunch the
spread of separatism in the country’s east, vowing to overcome unrest he
says is stoked by Russia and hold an election slated for May 25. Following
an expansion of sanctions against people and companies linked to
Vladimir Putin’s inner circle this week, the Russian president warned
that further economic penalties over the crisis may lead the government
to reconsider participation by foreign companies in his country’s energy
and other key industries. European officials pressed their criticism of
Russia’s commitment to an accord seeking to defuse tensions. As
part of a creeping campaign by pro-Russian militants across Ukraine’s
east, armed men seized government buildings in the city of Horlivka
today, while news service Unian reported a member of the Donetsk
electoral commission was kidnapped by “terrorists.”

Republicans Seek More Sanctions on Russia. President
Barack Obama would be authorized to arm pro-Ukrainian forces and
sanction Russian banks and oil companies under legislation introduced by
the top Republican on the Senate Foreign Relations Committee. The
bill by Bob Corker of Tennessee will serve as the minority party’s
counterproposal in the Democratic Party-controlled Senate to steps taken
by the administration.

Putin's Threat to Retaliate for Sanctions Carries Risks.
President Vladimir Putin’s threats to retaliate for further sanctions
on Russia set the stage for escalating economic warfare that may have
painful effects for U.S. and European companies. While
the Russian leader is casting himself as reluctant to take
countermeasures against additional penalties from the U.S. and European
Union, he hasn’t ruled out doing so eventually. Such a move could dash
billions of dollars in foreign investment in some of the world’s biggest
untapped oil reserves.

Bondholders Urged U.S. to Curb Russia Sanctions, Fitch Says. The
U.S. is holding off on sanctions against some Russian companies because
it doesn’t want to hurt American holders of their debt, according to Fitch Ratings. “We’ve heard quite a lot of anecdotal evidence that there’s actually a lot of consultation with big investors and bondholders in terms of what sanctions might be imposed by the U.S.,” James Watson, a managing director at Fitch, told reporters today in London. “It seems there has been a significant push back on potentially sanctioning companies that
have significant foreign debt.”

Vale Profit Falls After China Slowdown Weighs on Iron-Ore. Vale
SA (VALE), the largest iron-ore producer, posted a steeper decline in
first-quarter profit than analysts expected after selling the steel
ingredient 25 percent
cheaper than a market reference price. Shares slumped. Mounting concern that economic growth is slowing in China, Vale’s biggest buyer, is pushing down iron-ore prices and
holding the miner’s shares close to a five-year low.

European Stocks Little Changed Before Fed Policy Decision.
European stocks were little changed
from a three-week high, as a report showing U.S. economic growth
stalled offset better-than-forecast jobs data, while investors
awaited a Federal Reserve decision on monetary policy. Banco Bilbao
Vizcaya Argentaria SA slipped 1.1 percent
after reporting a drop in first-quarter profit. BNP Paribas SA
fell 3.2 percent after saying it may need to pay much more than the $1.1
billion it set aside for alleged U.S. sanctions breaches. Alstom (ALO)
SA jumped 9.3 percent as General Electric Co.
made a 12.4 billion-euro ($17.2 billion) bid for the French
company’s energy business.
The Stoxx Europe 600 Index retreated 0.1 percent to 337.89
at the close of trading, paring its monthly advance to 1.1
percent.

Wall Street Journal:

EU Arms Sales to Russia Should Be Restricted as Part of More Severe Sanctions -UK. Restrictions on arms sales to Russia should be part of any so-called stage three
European Union sanctions on Moscow if there is any further Russian incursion
into southern and eastern Ukraine, Prime Minister David Cameron said on
Wednesday. The comment is likely to be noted in France, which has a 1.4 billion euro
($1.95 billion) order from Russia for two Mistral-class warships. The first
Mistral, a high-tech amphibious assault ship capable of deploying helicopters
and tanks, is due to arrive in Russia by the end of the year.

Ukraine's east slipping from government's grasp. Pro-Moscow separatists seized government offices in more Ukrainian
towns on Wednesday, in a further sign that authorities in Kiev are
losing control of the country's eastern industrial heartland bordering
Russia. Gunmen who turned up at dawn took control of official
buildings in Horlivka, a town of almost 300,000 people, said a Reuters
photographer. They refused to be photographed.

U.S. government says it lost $11.2 billion on GM(GM) bailout. The U.S.
government lost $11.2 billion on its bailout of General Motors Co, more
than the $10.3 billion the Treasury Department estimated when it sold
its remaining GM shares in December, according to a government report
released on Wednesday.The $11.2 billion loss
includes a write-off in March of the government's remaining $826
million investment in "old" GM, the quarterly report by a Treasury
watchdog said.

Putin Says Sanctions Jeopardize U.S., EU Energy Deals. Russian
President Vladimir Putin warned that further economic sanctions over
the Ukraine crisis may lead Russia to reconsider participation by U.S.
and European Union companies in energy and other key industries. While his government has prepared measures to retaliate for penalties imposed
by the U.S. and its allies, Putin told reporters in Minsk, Belarus,
yesterday that he doesn’t consider them necessary for now, though that
may change. If sanctions continue, “then of course we will have
to consider who’s working and how in the Russian Federation, in the key
sectors of the Russian economy, including energy,” he said. “We really
don’t want to take these reciprocal steps.”

Moody’s Says Developer Default Risk to Slow Sales: China Credit. Moody’s
Investors Service said the
risk more Chinese property developers will default, after the collapse
of Zhejiang Xingrun Real Estate Co., will make it harder for them to
raise funds just as apartment sales cool. The builders have issued $500
million of offshore yuan or dollar bonds this month, compared with $1.6
billion in the same period last year and a record $9.2 billion in the
first quarter, data compiled by Moody’s show. The price of property securities,
which account for 32 percent of a Bank of America Merrill Lynch
index of China dollar bonds, slumped 4.9 percent in the past
year, paring their returns to 0.9 percent. That compares with a
1.6 percent total gain for dollar bonds globally, according to
Bank of America.

Asian Stocks Rise Ahead of Bank of Japan, Fed Decisions. Asian stocks rose as investors weighed corporate earnings before the Bank of Japan and Federal Reserve report on monetary policy.
Kyocera Corp. climbed 4.2 percent in Tokyo after the electronics and
solar-panel maker reported full-year profit that beat analyst estimates.
SoftBank Corp., the Japanese phone company controlled by Masayoshi Son,
gained 1.7 percent after
unit Sprint Corp. boosted its full-year forecast and reported
first-quarter sales that topped estimates. Woolworths Ltd.
slipped 2.6 percent as quarterly food and liquor sales by the
Australian retailer fell short of expectations. The MSCI Asia Pacific Index gained 0.2 percent to 137.76 as
of 9:40 a.m. in Tokyo, with all 10 industry groups on the gauge
rising.

Deutsche Bank Among 15 Europe Lenders Cut to Negative by S&P. Deutsche
Bank AG (DBK), Germany’s largest lender, was among 15 European banks
that had their outlooks cut to negative by Standard & Poor’s on the
prospect that governments are less likely to provide aid. The outlooks were lowered from stable “to reflect our view that extraordinary government support is likely to diminish as
regulators implement resolution frameworks,” the ratings firm
said yesterday in a statement.

Boiled Frog Syndrome Invades CMBS as Risks Mount: Credit Markets. The growing din surrounding loosening standards in the
commercial-mortgage bond market is doing little to deter buyers.
Investors are lapping up the debt and accepting less interest to do so
even as Moody's Investors Service warns that risk are building in debt
linked to properties ranging from shopping malls and skyscrapers to hotels. After a month-long lull in issuance, Wall Street banks were poised to sell about $3.6 billion of the securities yesterday, a week after the ratings company said investors were facing a case of "boiling frog syndrome," where they fail to react to gradually increasing threats until it's too late. "There is no doubt underwriting is getting weaker," Keerthi Raghavan, a debt analyst at Barclays Plc in New York, said in an interview. The pace of deterioration "really picked up steam starting in the middle of 2013."

Supreme Court Revives EPA Rule on Air Pollution Across State Lines. Court's 6-2 Ruling Is Victory for Obama Administration; 28 States Will Have to Reduce Power-Plant Emissions. The Environmental Protection Agency can reinstate limits
on power-plant pollution that blows across state lines, the Supreme
Court ruled Tuesday, handing a defeat to electric utilities that opposed
the effort as costly regulatory overreach. The court's 6-2
ruling breathes new life into a 2011 EPA measure known as the
Cross-State Air Pollution Rule, which requires 28 states to reduce
emissions that hurt air quality in...

Enrollment in Student-Debt Forgiveness Programs Soars in 2014. Two federal programs that offer to wipe away huge accumulations of student debt have grown at a rapid clip this year, putting them among the government’s fastest-growing forms of financial assistance. The
Journal reported last week that enrollment in the plans—which allow
students to rack up big debts and then forgive the unpaid balance after a
set period—surged nearly 40% in the second half of 2013.

Pro-Russia Forces Extend Grasp in Ukrainian City of Luhansk. Militants Break Down Doors to Government Building; President Criticizes Local Police. Pro-Russia militants in masks broke down doors and stormed government
buildings Tuesday in another area of Ukraine that hugs the Russian
border, as the new government in Kiev criticized local police for
failing to stem the growing unrest.

A Foreign Policy Flirting With Chaos. The most egregious case of fecklessness has been on Syria. Doubts about American dependability were raised far and wide. American foreign policy is in troubling disarray. The result is
unwelcome news for the world, which largely depends upon the United
States to promote order in the absence of any other country able and
willing to do so. And it is bad for the U.S., which cannot insulate
itself from the world.

California drove Toyota out of state: Torrance Mayor. (video)
Torrance Mayor Frank Scotto blames the state of California for Toyota
Motor's decision to relocate its North American headquarters from the
city to Plano, Texas. "The state of California lost Toyota," Scotto
said on "Power Lunch" Tuesday. He pointed to a number of issues in the
Golden State that negatively
affect companies' bottom line: tax structure, workers' compensation
and liability insurance.

SEC chair: We've found 'bogus' private equity and hedge fund fees.
SEC Chairwoman Mary Jo White today testified in front of the U.S.
House Committee on Financial Services, to discuss the Agency's recent
activities and 2015 budget request. As part of that overview, White
suggested that recent examinations of hedge fund and private equity fund
managers have uncovered some very unsavory activities. Namely, charging
improper fees to investors and portfolio companies.

Reuters:

U.S. Steel(X) returns to profit but warns of weaker 2nd qtr. United States Steel Corp returned to profit in the first quarter, but the steelmaker said Tuesday it expected reduced operating income in the second quarter as cold weather slowed transportation of raw materials and finished products. The Pittsburgh-based steelmaker also said it expects to
report a loss in its flat-rolled segment, its biggest unit by
shipments, in the second quarter. Its shares fell in after-hours
trading.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

EU Joins U.S. With New Sanctions on Russia Over Ukraine. The
European Union widened sanctions against Russia for its actions in
Ukraine, following similar steps yesterday by the U.S., which called
separatist violence in the country’s east “terrorism, pure and simple.”
The EU added Russian Deputy Premier Dmitry Kozak to a list of people
facing travel bans and asset freezes along with others including
pro-Russian separatist leaders, according to a statement today in the
EU’s Official Journal. The U.S. targeted seven people, including Kozak
and Igor Sechin, head of oil giant OAO Rosneft (ROSN), and 17 companies
yesterday linked to allies of President Vladimir Putin, such as
InvestCapitalBank.

China Test Shows Bad Loan Surge Would Hurt Banks’ Capital.
China’s systemically important banks may see their capital adequacy
ratio fall to 10.5 percent in the event bad loans surge fivefold,
according to a stress test by the nation’s central bank. The average
capital adequacy ratio of the 17 banks, which account for 61 percent of
China’s banking assets, may fall to 10.5 percent from the end-2013 level
of 11.98 percent should nonperforming loans increase 400 percent in the
worst-case scenario, the People’s Bank of China said in its annual financial stability report yesterday.

European Stocks Advance to Three-Week High Amid Earnings.
European stocks rose to a three-week high as companies from Deutsche
Bank AG to Statoil ASA reported earnings that beat estimates. Deutsche Bank climbed 2.2 percent after Europe’s largest investment bank said first-quarter profit dropped less than
projected. Statoil gained 4.5 percent. Nokia Oyj gained 2.9
percent after naming a new chief executive officer and saying it
will spend about 5 billion euros ($6.9 billion) on dividends,
share buybacks and debt reduction. ABB Ltd. fell the most in
four years after the world’s largest maker of power transformers
posted quarterly profit that missed estimates. The Stoxx Europe 600 Index rallied 1.2 percent, the most in
a week, to 338.12 at the close of trading in London.

Apollo’s Rowan Sees ‘Danger Signs’ of Crisis in Debt Markets. Apollo
Global Management LLC (APO) co-founder Marc Rowan said he sees many
signs of a bubble in the credit markets that could lead to a financial
crisis. “All the danger signs are there of a future crisis,” Rowan
said today at the Milken Institute Global Conference in Beverly Hills,
California. “We’re back to doing exactly the
same things that were done in the credit markets during the
crisis. Our job is to step wisely and try to avoid that.”
Rowan joins a growing chorus of regulators and investors,
including Marathon Asset Management LP and DoubleLine Capital LP’s
Jeffrey Gundlach, expressing concern about aggressive underwriting
standards as the Federal Reserve’s zero-interest policy extends into a
sixth year.

Nul points for EU’s stress-test comedy, but French property slump rings true. Be careful if you are planning to buy a house in
France. The EU stress test for banks released this morning expects
French property to fall 1.6pc this year and another 1pc in 2015 even if
things go well. The “adverse scenario” is a cumulative drop of 31pc by the end of
2016. This reflects the worries of French regulators who fed the data to
the European Banking Authority.

U.S. Drip-Feed of Sanctions Seen Risking Putin Backlash. The
latest U.S. penalties against Vladimir Putin’s inner circle may provoke
the Russian president into escalating the Ukraine crisis without
crippling key sectors of his nation’s economy. The sanctions imposed by
the Obama administration yesterday on seven officials and 17 companies
won’t go unanswered, Deputy Foreign Minister Sergei Ryabkov told
Interfax. While markets showed relief as Russia’s largest banks avoided
U.S. measures, Putin may take this round personally,
according to Konstantin Simonov, president of Russia’s National
Energy Security Foundation.

Russia Recession Risk Seen at Record High as Sanctions Escalate. Russia faces a fifty-fifty chance
of recession, the highest since Bloomberg started to track the
measure, as the crisis in Ukraine raises the risk of further
sanctions, according to a survey of economists. The probability of a recession over the next 12 months rose
to 50 percent, the highest since the first such Bloomberg survey
in June 2012, according to the median estimate of eight
economists surveyed before the U.S. and the European Union
announced their latest salvo of sanctions yesterday. The gauge
was at 45 percent last month.

China’s Provinces Miss Growth Goals Even After Ambitions Lowered. Almost all Chinese provinces failed
to meet their growth targets in the first quarter even after
scaling back their ambitions as the government instructs
officials to focus on reining in debt and curbing pollution. Thirty of 31 provinces and municipalities reported missing
their goals, with the biggest shortfall in northeastern
Heilongjiang, where an expansion of 4.1 percent compared with an
8.5 percent target for the year. Most localities’ targets are lower
than in 2013. The latest data were released by government websites and
newspapers. Premier Li Keqiang risks the nation sliding into a deeper
slowdown as the government cracks down on overcapacity in the steel
industry, wrestles with shadow banking risks and rolls out
economic restructuring measures.

Asian Stocks Swing From Gain to Loss on Earnings Outlook. Asian stocks swung between gains and losses as investors weighed corporate earnings and after U.S. equities advanced.
Posco climbed 3.1 percent after the Korean Economic Daily said South
Korea’s largest steelmaker is considering the sale of Daewoo
International Corp. Samsung Electronics Co. fell 0.1 percent in Seoul
after rising as much as 0.5 percent as the world’s No.1 maker of
smartphones posted first-quarter profit that beat analyst estimates.
Newcrest Mining Ltd., Australia’s
biggest gold producer, slipped 1.4 percent as the price of the
bullion headed for a second day of decline.
The MSCI Asia Pacific Excluding Japan Index was little
changed at 475.84 as of 9:49 a.m. in Seoul.

Aluminum Declines to Lowest in Two Weeks as Inventories Expand. Aluminum fell to the lowest in more
than two weeks in London as inventories expanded. Copper declined for the first time in seven sessions. Inventories
of unwrought aluminum climbed to 1.215 million metric tons in March,
from a revised 1.171 million tons a month earlier, the International
Aluminium Institute said in a report today. In the warehouses tracked by
the London Metal Exchange, stockpiles rose for a third day to 5.3
million tons, the longest
stretch of gains this year.

Zell Says Homeownership Rate to Fall as Marriages Delayed. The
U.S. homeownership rate may fall to as low as 55 percent because more
Americans are choosing to rent as they postpone getting married and
having children, said Sam Zell, chairman of landlord Equity Residential.
Demographic and lifestyle changes, more than economic factors, are
driving down the ownership rate over the long term, Zell said today at
the Milken Institute Global Conference in Beverly Hills, California. As
of 2010, about 54 percent of
adults were married, down from 57 percent a decade earlier,
according to the U.S. Census Bureau.

LinkedIn(LNKD) Slumps as Social-Media Stock Plunge Accelerates.
The selloff in social-media stocks
is gathering steam. Facebook Inc. (FB), Twitter Inc. (TWTR), LinkedIn
Corp. (LNKD) and Yelp Inc. (YELP) fell today, marking at least four
straight days of declines. All have lost at least 19 percent of their
market value this year except Facebook, which is up 2.7 percent. That
stands in contrast to last year, when each stock was up by a record.
Investors are questioning whether the Web companies can keep up revenue
expansion, as some show signs of slowing gains in the number of users. Social-media
companies, which generate revenue via advertisements or subscriptions,
have been valued on their promises of fast growth, not the fundamentals
of their business, according to Jeff Sica, chief investment officer at
Sica Wealth Management LLC in Morristown, New Jersey.

'Almost every asset is overvalued': Apollo pro. "The quantitative easing and the excess money and the low interest rates
have driven pricing up of almost all financial assets to beyond what
their intrinsic value might be," Joshua Harris, co-founder and chief
investment officer of $161 billion private equity firm Apollo Global
Management, said Monday at the Milken Institute's Global Conference in
Los Angeles.

US CFTC launches inquiry into evasion of swaps rules.
The U.S. swaps regulator
plans to research whetherU.S. banks' overseas trading activity is
complying with its rules, a senior official said on Monday, as Wall
Street adapts to new rules for the $690 trillion global market. Scott
O'Malia, a Republican member of the Commodity Futures Trading
Commision, said he had asked the agency's staff for a legal opinion on
whether U.S. banks were possibly evading its rules when doing business
in Europe.

China May Use Fiscal Policy to Curb Overcapacity. China will
continue its proactive fiscal policy with fine-tuning at appropriate
times with more specific industry targets to curb overcapacity,
according to a front-page commentary, written by reporter Gu Xin.
Heavily polluting industries may have their export quotas reduced if
cos. fail to meet pollutant emission standards, the commentary wrote.

BOTTOM LINE: Asian
indices are mostly lower, weighed down by technology and financial
shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

The positions and strategies discussed on BETWEEN THE HEDGES are offered for entertainment purposes only and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor of this blog holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in anyway, considered liable for the investment performance of any securities or strategies discussed.